In re: 650 Fifth Avenue and Related Properties

Background

The Government’s civil forfeiture case sought forfeiture of property interests held by Claimants Alavi Foundation and the 650 Fifth Avenue Company. The Government alleged that Claimants had provided unlawful services to instrumentalities of the Government of Iran in violation of U.S. sanctions and the International Emergency Economic Powers Act.

The immediate dispute concerned a December 12, 2019 interim trustee and protective order. That order severely restricted Claimants’ access to rental income from their building at 650 Fifth Avenue, income that Claimants said could be used to fund their legal defense. Claimants asked the court to modify the order.

The opinion recounts that earlier forfeiture rulings had been vacated and remanded by the Court of Appeals. The case was therefore pending further proceedings when the court entered the interim order and Claimants filed this motion.

Legal Framework

The court considered federal civil-forfeiture statutes governing property that may be forfeited and protective orders used to preserve such property before a forfeiture judgment. It focused particularly on 18 U.S.C. § 985, which applies to real property and interests in real property.

Section 985 generally prohibits seizure of real property that is the subject of a civil forfeiture case before a forfeiture order. It permits pretrial seizure after a hearing giving the property owner a meaningful opportunity to be heard. It also permits an emergency, without-notice determination when the Government shows probable cause for forfeiture and circumstances requiring immediate action.

Court’s Analysis

The court held that rental income from the Building is an interest in real property within Section 985. It rejected the Government’s argument that the statute applies only to the physical building, reasoning that the statute also expressly covers interests in real property. The court also found that the rental income is closely connected to ownership and operation of the Building.

The court further held that the interim order’s restrictions amounted to a seizure of real property under Section 985 and the Fifth Amendment’s protection against deprivation of property without due process. A seizure does not require the Government to take physical possession; meaningful interference with property rights can be enough. By preventing Claimants from using rental income, the order significantly limited their ability to use the Building as a rental property.

The court concluded that the Government had not shown exigent circumstances—an emergency that would justify action without a prior hearing. The Government had mentioned exigency only briefly in its papers and at oral argument, which the court found insufficient to meet the Government’s burden.

Disposition

Judge Loretta A. Preska granted Claimants’ motion to modify the protective order. The order was modified to allow rental income generated by the Building from December 12, 2019, until a hearing could be held, to flow to Claimants. The court also directed the parties to confer and propose a briefing schedule concerning the issues discussed at oral argument, including probable cause for a pretrial seizure.

This order addressed the interim restrictions on rental income and the procedures required before pretrial seizure of real-property interests. It did not resolve the ultimate forfeiture claims described in the opinion.